Citation Partners, LLC v. Wisconsin Department of Revenue

2021 WI App 86

COURT OF APPEALS OF WISCONSIN
PUBLISHED OPINION

Case No.: 2020AP1683

† Petition for Review filed

Complete Title of Case:

CITATION PARTNERS, LLC,

PETITIONER-RESPONDENT,†

V.

WISCONSIN DEPARTMENT OF REVENUE,

RESPONDENT-APPELLANT.

Opinion Filed: November 23, 2021
Submitted on Briefs: June 9, 2021
Oral Argument:

JUDGES: Donald, P.J., Dugan and White, JJ.
Concurred:
Dissented:

Appellant
ATTORNEYS: On behalf of the respondent-appellant, the cause was submitted on the
brief of Anthony D. Russomanno, assistant attorney general, and
Joshua L. Kaul, attorney general.

Respondent
ATTORNEYS: On behalf of the petitioner-respondent, the cause was submitted on the
brief of Frederic J. Brouner, Megan A. Senatori, and J. Wesley
Webendorfer of DeWitt LLP of Madison.
2021 WI App 86

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
November 23, 2021
A party may file with the Supreme Court a
Sheila T. Reiff petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10 and
RULE 809.62.

Appeal No. 2020AP1683 Cir. Ct. No. 2019CV612

STATE OF WISCONSIN IN COURT OF APPEALS

CITATION PARTNERS, LLC,

PETITIONER-RESPONDENT,

V.

WISCONSIN DEPARTMENT OF REVENUE,

RESPONDENT-APPELLANT.

APPEAL from orders of the circuit court for Dodge County:
MARTIN J. DeVRIES, Judge. Reversed and cause remanded with directions.

Before Donald, P.J., Dugan and White, JJ.

¶1 DONALD, P.J. Citation Partners, LLC is in the business of leasing
aircraft. At issue in this case is whether the total amount paid for an aircraft lease
is subject to sales tax, or, if portions of a lease payment attributed to aircraft
maintenance and engine maintenance are statutorily exempt from sales tax. The
No. 2020AP1683

Tax Appeals Commission agreed with the Wisconsin Department of Revenue that
sales tax applies to the total amount paid on a lease. The circuit court, however,
reversed the Commission’s decision and found that portions of a lease payment for
aircraft maintenance and engine maintenance are exempt from sales tax.

¶2 As discussed below, based on the plain language of the statutes and
the particular facts of this case, we conclude that the total amount paid on a lease is
subject to sales tax without any deductions for aircraft maintenance or engine
maintenance. Sales tax cannot be avoided by dividing up a lease price into
categories or affixing labels. We therefore reverse the circuit court’s orders and
remand with instructions to affirm the Commission’s decision.

BACKGROUND

Stipulated Facts1

¶3 Citation Partners owns a Cessna Citation aircraft which it leases to
related parties as well as to unrelated third parties (collectively, the “Lessees”)
pursuant to an Aircraft Dry Lease. The Dry Lease requires Citation Partners to
schedule and pay for all repairs and maintenance, and in turn, requires the Lessees
to “reimburse” Citations Partners for their share of those costs. In addition to the
Dry Lease, each Lessee also executes a Side Agreement, which details the rates the
Lessees pay to Citation Partners.

1
The parties stipulated to the following relevant facts before the Tax Appeals
Commission.

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¶4 On July 1, 2014, Wisconsin Act 185 took effect. Act 185 exempts
from sales tax various “types of services,” including the repair, service, and
maintenance of any aircraft or aircraft parts, and “the sale of” parts used to modify
or repair aircraft. 2013 Wis. Act 185, §§ 1, 3; see also WIS. STAT.
§§ 77.52(2)(a)10., 77.54(5)(a)3. (2019-20).2

¶5 Prior to Act 185, Citation Partners collected sales tax on the entire
lease price of the aircraft, including aircraft maintenance and engine maintenance
costs. After Act 185 took effect, beginning in November 2014, Citation Partners no
longer collected sales tax on the portion of the Lessees’ payments attributed to
aircraft maintenance and engine maintenance. Citation Partners also changed its
invoicing procedures so that both aircraft maintenance and engine maintenance
costs were specifically identified.3 In addition, Citation Partners applied to the
Department for a refund of the sales tax collected for aircraft maintenance and
engine maintenance between July 1, 2014 and October 31, 2014, which was
granted.4

¶6 Subsequently, the Department conducted a field audit of Citation
Partners. Following the field audit, the Department issued a tax assessment, which
included, but was not limited to, the sales tax that was not collected for aircraft
maintenance and engine maintenance costs from November 1, 2014, through

2
All references to the Wisconsin Statutes are to the 2019-20 version unless otherwise
noted.
3
Previously, only the engine maintenance costs were specifically identified.
4
Citation Partners issued credit memos to all Lessees to reflect the refund from the
Department.

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December 31, 2015. The assessment also sought to recover the amounts previously
refunded.

¶7 Citation Partners filed a petition for redetermination of the
assessment, which the Department denied.

Tax Appeals Commission Decision

¶8 Citation Partners sought administrative review by the Tax Appeals
Commission.

¶9 On December 4, 2019, the Commission issued a decision affirming
the Department’s decision. The Commission first found that the Lessees’ payments
to Citation Partners for repairs and maintenance were not “reimbursements.”
Rather, Citation Partners was “expressly responsible for the repairs and
maintenance.”

¶10 The Commission next turned to the language of the sales tax statutes,
WIS. STAT. §§ 77.52(1)(a), 77.51(15b)(a). The Commission stated that “tax is
levied upon the sales price of the lease” and “[s]ales price is defined as the ‘full
consideration’ for which tangible property is leased, with no deduction for costs or
other expenses of the seller.”

¶11 The Commission concluded that the “full amount charged and paid to
[Citation Partners] by its Lessees” is subject to sales tax. The Commission stated
that “[w]hile Act 185 may apply to [Citation Partner’s] purchase of aircraft
maintenance services and repair parts, it does not apply to any portion of the
subsequent lease payments to [Citation Partners] from its Lessees.” The
Commission explained that “[s]ales price is the total consideration received without
any reduction for such expenses of the seller” and “[t]he cost of maintenance

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services and repair parts is an expense of the seller which is not to be deducted from
the ‘sales price’ of the leases.”

Circuit Court Decision

¶12 Citation Partners filed a petition for WIS. STAT. ch. 227 judicial
review of the Commission’s decision in the Dodge County Circuit Court.

¶13 On August 20, 2020, the circuit court reversed the Commission. In a
written decision, the circuit court found that the “reimbursements” for engine
maintenance and aircraft maintenance made to Citation Partners by the Lessees
between July 1, 2014, and December 31, 2015, were exempt from sales tax. The
court found that Citation Partners was an “agent” for its Lessees when it purchased
repairs, maintenance, and parts for the aircraft, thus, Citation Partners was entitled
to a sales tax exemption. In addition, the court stated that the legislative history
supported an exemption because the “intent was to not tax aircraft repairs,
maintenance and parts sales[.]”

¶14 A supplemental order was entered on September 21, 2020 reiterating
that the Commission’s ruling was reversed. The order also added that the
Department’s sales tax assessment against Citation Partners was set aside and
abated. The Department appeals.

DISCUSSION

¶15 On appeal, the Department argues that Citation Partners was required
to collect sales tax on the total amount paid on an aircraft lease without any
deductions. Citation Partners responds that any payments for engine maintenance
and aircraft maintenance are exempt from sales tax. The resolution of this issue
requires us to interpret and apply Wisconsin’s sales tax law. We first discuss the

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general principles of statutory interpretation and the applicable standard of review.
We then turn to the specific statutes at issue and conclude that under the particular
facts of this case the portions of a lease payment for engine maintenance and aircraft
maintenance are not exempt from sales tax based on the plain language of the
statutes.

A. Principles of Statutory Interpretation and Standard of Review

¶16 “Statutory language is given its common, ordinary, and accepted
meaning, except that technical or specially-defined words or phrases are given their
technical or special definitional meaning.” State ex rel. Kalal v. Circuit Ct. for
Dane Cnty., 2004 WI 58, ¶45, 271 Wis. 2d 633, 681 N.W.2d 110. We interpret
statutory language “in the context in which it is used; not in isolation but as part of
a whole; in relation to the language of surrounding or closely-related statutes; and
reasonably, to avoid absurd or unreasonable results.” Id., ¶46. If the meaning of a
statute is plain, we ordinarily stop our inquiry and apply the words chosen by the
legislature. Id., ¶45.

¶17 “In an appeal following a decision of the Tax Appeals Commission,
we review the Commission’s decision, not the circuit court’s.” Arty’s, LLC v. DOR,
2018 WI App 64, ¶13, 384 Wis. 2d 320, 919 N.W.2d 590 (citation omitted).
Statutory interpretation presents a question of a law. Healthcare Servs. Grp., Inc.
v. DOR, 2018 WI App 48, ¶10, 383 Wis. 2d 699, 916 N.W.2d 635. An
administrative agency’s conclusions of law are reviewed de novo. Tetra Tech EC,
Inc. v. DOR, 2018 WI 75, ¶84, 382 Wis. 2d 496, 914 N.W.2d 21.

¶18 However, “[a]s ‘a matter of persuasion, not deference,’ we … give
‘respectful,’ ‘due weight’ consideration to ‘the experience, technical competence,
and specialized knowledge of the agency involved, as well as discretionary authority

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No. 2020AP1683

conferred upon it,’ because ‘administrative agencies can sometimes bring unique
insights to the matters for which they are responsible.’” Arty’s, 384 Wis. 2d 320,
¶13 n.5 (citations omitted).

¶19 The Department asserts that its views and the Commission’s views of
sales tax law “should be given appropriate respect.” The Department notes that it
“exercise[s] general supervision over the administration of the assessment and tax
laws of the state.” See WIS. STAT. § 73.03(1). Additionally, the Department states
that the Commission is “the final authority for the hearing and determination of all
questions of law and fact on relevant tax issues at the administrative level.” See
WIS. STAT. § 73.01(4)(a).

¶20 In contrast, Citation Partners argues that we should not give the
Department’s or the Commission’s perspective “any special persuasive value.”
Citation Partners suggests that “the Department has not pointed to any specific
experience or expertise that either it or the Commission possesses regarding … the
sales tax exemption created by Act 185[.]”

¶21 We agree with Citation Partners regarding the standard of review. “If
an agency brings to court nothing but a rote recitation of its background with the
subject matter, it should not expect the statutory directive to give its argument extra
heft.” Tetra Tech EC, 382 Wis. 2d 496, ¶79. Accordingly, we review the
Commission’s decision de novo.

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B. Wisconsin’s Sales Tax Law

¶22 Wisconsin’s sales tax law is set forth in WIS. STAT. ch. 77.
WISCONSIN STAT. § 77.52(1)(a) provides that the lease of tangible personal
property, such as an aircraft,5 is subject to a five percent sales tax:

For the privilege of selling, licensing, leasing or
renting tangible personal property at retail a tax is imposed
upon all retailers at the rate of 5 percent of the sales price
from the sale, license, lease or rental of tangible personal
property sold, licensed, leased or rented at retail in this state,
as determined under s. 77.522.

¶23 The five percent sales tax applies to the “sales price” of a lease. WIS.
STAT. § 77.52(1)(a). “Sales price” is defined as the “total amount of consideration”
for which the property is leased. WIS. STAT. § 77.51(15b)(a). There is not any
deduction from the sales price for the following:

1. The seller’s cost of the property or items, property, or
goods under s. 77.52(1) (b), (c), or (d) sold.

2. The cost of materials used, labor or service cost, interest,
losses, all costs of transportation to the seller, all taxes
imposed on the seller, except as provided in par. (b)
3m. and 3s., and any other expense of the seller.

Sec. 77.51(15b)(a)1.-2. (emphasis added). Thus, the plain language of the statutes
provides that a five percent sales tax is applied to the “total amount of consideration”
received without any deduction for costs or expenses.

¶24 Accordingly, here, sales tax applies to the total amount paid on an
aircraft lease. There is not any deduction for the portions of a lease attributed to

5
Citation Partners does not dispute that an aircraft constitutes tangible personal property.
Further, such an argument would lack merit. A “retailer” in WIS. STAT. § 77.52 includes anyone
“making any retail sale of a[n] … aircraft[.] WIS. STAT. § 77.51(13)(am). A retail sale means any
lease. WIS. STAT. § 77.51(13rm).

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aircraft maintenance or engine maintenance, which are the costs and expenses of
running an aircraft leasing business. Citation Partners cannot avoid taxation by
dividing up its lease price into categories and affixing labels. See generally
Milwaukee Gas Light Co. v. Wisconsin Dep’t of Tax’n, 23 Wis. 2d 195, 205, 127
N.W.2d 64 (1964) (stating that “labels do not and should not determine” taxability
for the purposes of state income). If this were the case, parties could avoid taxation
by merely changing how they labeled their transactions.

¶25 Citation Partners argues that the Lessees’ payments for aircraft
maintenance and engine maintenance are not included in the sales price of a lease
because Citation Partners received “no benefit and no profit” from the payments.
However, as the Department asserts, Citation Partners did receive “a benefit: it
maintains its aircraft so that it can lease it[.]” Moreover, nothing in the statutes
states that sales tax is only assessed against a “profit.” As stated above, the statutes
expressly provide that sales tax applies to the “total amount of consideration” for
which an aircraft is leased without any deduction for costs and expenses. See WIS.
STAT. §§ 77.51(15b)(a).

C. Act 185 Exemptions

¶26 Citation Partners argues that Act 185 exempts the Lessees’ payments
for engine maintenance and aircraft maintenance from sales tax. Again, we
disagree.

¶27 “Tax exemption statutes are strictly construed against granting an
exemption.” Southwest Airlines Co. v. DOR, 2021 WI 54, ¶24, 397 Wis. 2d 431,
960 N.W.2d 384. “A strict construction, however, does not mean we give the statute
the narrowest possible reading or an unreasonable construction.” Covenant
Healthcare Sys., Inc. v. City of Wauwatosa, 2011 WI 80, ¶22, 336 Wis. 2d 522,

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800 N.W.2d 906. “[W]e apply a ‘strict but reasonable’ interpretation to tax
exemption statutes.” Id. (citation omitted). The party seeking an exemption bears
the burden of proving its entitlement and any ambiguity is resolved in favor of
taxation. Columbus Park Hous. Corp. v. City of Kenosha, 2003 WI 143, ¶11, 267
Wis. 2d 59, 671 N.W.2d 633.

¶28 Based on these principles, we are not persuaded by Citation Partners’
argument. “Reading a statute ‘strictly but reasonably’ … does not allow us to read
language into [a] statute that is not present.” Southwest Airlines, 397 Wis. 2d 431,
¶27.

¶29 Wisconsin Act 185 amended WIS. STAT. § 77.52(2)(a)10. See 2013
Wis. Act 185, § 1. Section 77.52(2)(a)10., as amended, exempts certain “types of
services” from sales tax:

(2)(a) The tax imposed herein applies to the following types
of services:

….

10. Except for the repair, service, alteration, fitting, cleaning,
painting, coating, towing, inspection, and maintenance of
any aircraft or aircraft parts ….

This section does not exempt a lease from sales tax.

¶30 Wisconsin Act 185 also recreated WIS. STAT. § 77.54(5)(a)3. See
2013 Wis. Act 185, § 3. Section 77.54(5)(a)3. exempts the “sale of” parts used to
modify or repair aircraft from sales tax:

There are exempted from the taxes imposed by this
subchapter:

.…

(5) The sales price from the sale of and the storage, use or
other consumption of:

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.…

(a)3. Parts used to modify or repair aircraft.

Once again, this section does not exempt a lease from sales tax.

¶31 Thus, we conclude that Citation Partners has failed to show that it is
“clearly” entitled to an exemption. See Southwest Airlines, 397 Wis. 2d 431, ¶26.
While the direct purchase of a repair or maintenance service or of an aircraft part
may qualify for a sales tax exemption, leases are not exempt from sales tax under
the statutes. It would be error for us to read into the statutes an exemption that the
legislature did not include. Id., ¶29.

¶32 In addition, Citation Partners argues that it is an “agent of the
Lessees.” However, we agree with the Department that whether Citation Partners
is an agent is irrelevant. As stated above, the sales tax exemptions do not cover
leases.

¶33 Finally, Citation Partners argues that we should consider the
legislative history of Act 185. Typically, if the meaning of a statute is plain, we
stop our inquiry. See Kalal, 271 Wis. 2d 633, ¶45. Sometimes, however, courts
may consider legislative history to confirm a plain-meaning interpretation or when
a plain-meaning interpretation produces an absurd result. See Teschendorf v. State
Farm Ins. Cos., 2006 WI 89, ¶¶14-15, 293 Wis. 2d 123, 717 N.W.2d 258.

¶34 Here, even if we assume that it is appropriate to consult legislative
history, the legislative history Citation Partners cites does not support its argument.
Citation Partners asserts that the legislature intended that the sales tax exemptions
include small businesses. Citation Partners, however, does not point to anything
establishing that the exemptions were meant to expand to include leases.

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¶35 Therefore, for the reasons stated above, we reverse the circuit court’s
orders and remand with directions to affirm the Commission’s decision.

By the Court.—Orders reversed and cause remanded with directions.

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